FILE PHOTO: A worker rides a tricycle along a road within the grounds of the huge state-owned lead smelter in the town of Tianying, Anhui Province, November 19, 2012. REUTERS/David Gray/File Photo

BEIJING (Reuters) - China’s lead stockpiles have dropped to a “critical” level as a result of environmental inspections that have shut smelters even as demand for the metal from battery makers remains robust.

Lead stockpiles in China published by the Shanghai Futures Exchange (ShFE) were 29,850 tonnes on Sept. 8 and have plunged more than 64 percent from a three-year high of 83,622 tonnes on May 19.

But even more drastic is the supply of on-warrant lead, or metal that has not been earmarked for delivery and is available for trade. Those inventories stood at 9,735 tonnes on Sept. 12, down from 80,089 tonnes in on May 17.

“In the last few weeks, the ShFE warrants have dropped a lot so people may turn to the ShFE stocks to satisfy their lead demand. Now the stocks are at a critical level,” a Shanghai-based lead trader says.

Lead demand in China, the world’s largest user, comes chiefly from battery makers for cars and other vehicles. However, lead output has declined because of environmental probes that have shut down smelters operating illegally.

Front-month lead futures on the ShFE have gained 26 percent since their lowest close of 2017 on May 19 and last traded at 19,445 yuan ($2,977.70) a ton on Wednesday.

The environmental inspections are also limiting the production of raw material from mines in China, curtailing the amount of supply available for smelters to produce refined lead and also crimping stockpiles, according to analysts.

“Even stricter environment regulation and inspections on both mines and smelters/refineries curbs a certain amount of refined lead production,” said Jianbin Meng, the director of economics and environment at the International Lead and Zinc Study Group, in an email.

China’s total lead concentrate output in the first seven months of 2017 was 1.14 million tonnes, down 4.3 percent year on year, said Antaike, the research arm of the China Nonferrous Metals Industry Association, in a note on Wednesday.

“Domestic lead concentrate supply is dwindling,” said Antaike. “Primary lead plants have serious deficits and their output is reduced.”

“This year, domestic environment inspections have reached their most severe period in history,” it added, estimating that the crackdown has shut around 80 percent of illegal secondary lead smelters.

“Lead concentrate supply is very tight, exacerbated by the ban on North Korean concentrate exports” imposed last month, said the Shanghai-based lead trader, noting a sharp jump in physical premiums against the front-month Shanghai lead contract to around 600 yuan per ton, versus parity a month ago.